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5 ways to measure Facebook ROI

15th Nov 2012 | Credits to Brooke Hovey

With more than 1 billion active monthly users (one-seventh of the world’s population), there’s no denying that Facebook is dramatically changing the way people around the world connect with each other and with brands. If you’re like many marketers we’ve met, you’ve had license to experiment with a brand page over the past few years, and you’ve gotten by with reporting “likes” and “engagement” as success metrics. But now, your executive team wants to know, “What’s the ROI of Facebook?”

Over the years, numerous social media agencies and analysts have proclaimed to pinpoint the universal “Value of a Facebook Fan.” These values have ranged from 2 cents to $136.38, but unfortunately, none are accurate because all of these approaches oversimplify the matter.

The truth is there is no single way to determine the value of a Facebook Fan or initiative. This all depends on a company’s objectives. Values can vary even within a brand’s Fan base, just as they can within other audience segmentations. In other words, one segment of your Facebook Fan base may be more valuable than the rest.

If you’re wrestling with this ROI question – perhaps as you try to snag a few extra dollars for 2013 – consider these five different approaches as they relate to your objectives:

#1 – If your objective is to RAISE BRAND AWARENESS…

Friends of Fans are likely a great segment for you to target. For most brands, Fans primarily consist of current customers who are already brand-aware. In contrast, Friends of Fans represent an opportunity for expanded awareness – a segment that can be effectively reached through peer influence. The term “Amplification” describes the process of expanding awareness by promoting content to Friends of Fans through both earned and paid means. Most leading brands on Facebook achieve a monthly earned Amplification Ratio of between .5 and 2.0, showing that they extend the reach of their earned media exposure of Fans to Friends of Fans by 50-200%. Here’s the formula for Amplification Ratio:

    • Calculate the maximum number of impressions a page can generate (number of posts times number of Fans, plus number of Fan actions, times average number of Friends per active Fan).
    • Multiply Fan impressions by 16% (the average number of Fans who see a given post).
    • Multiply Fan impressions by 12% (the average number of a Fan’s Friends who see a given post).
    • Divide Friend impressions by Fan impressions to calculate the Amplification Ratio.

By tracking and optimizing your Amplification Ratio and measuring total Friends of Fans reached, you can demonstrate Facebook’s impact on raising brand awareness.

#2 – If your objective is toBUILD BRAND REPUTATION AND SHIFT/ENHANCE PERCEPTION…

Conduct a periodic brand perception study – either through a targeted Facebook survey ad unit or through other primary customer research. Segment respondents by Fans and non-Fans, and look for differences. Do Facebook Fans have a clearer understanding or more favorable perception of the brand? If so, assuming all other factors are the same, you can reasonably attribute this, in part, to their regular engagement with the brand on Facebook. I say “in part” because there’s a causality issue to consider (i.e., one could argue that people who “like” a brand on Facebook already have a more favorable perception). By measuring Fans’ perceptions over time, however, you may be able to prove that their understanding and affinity toward the brand is actually increasing. Additionally, you can analyze the sentiment of conversations within the Facebook community to show shifts over time, demonstrating how deeper engagement drives more favorable perceptions.

#3 – If your objective is to GENERATE REVENUE…

You may be able to attribute revenue to Facebook marketing in multiple ways – some directly, some more indirectly – depending on your business model. For example, perhaps you can:

    • Measure Facebook revenue attribution through the company website using an analytics program like Omniture or Google Analytics (i.e., referring traffic from Facebook that converts).
    • Measure redemption of offers at retail that are extended through Facebook only.
    • Measure signals of purchase intent by analyzing the text of Fans’ posts on Facebook.
    • Analyze the Spending Index and the online and offline purchase patterns of Fans and Friends of Fans to prove correlation – possibly in partnership with a group like Forrester or Gartner.
#4 – If your objective is to RETAIN CUSTOMERS…

You’re likely using Facebook to resolve customer service issues in order to keep customers and reduce churn. If so, find out how the business values each customer “saved” (a number often related to new customer acquisition costs and average customer lifetime values). Calculate the total value as you resolve issues through Facebook, demonstrating its important role in this equation. Additionally, by proactively resolving issues through social channels, you may be able to demonstrate a reduction in call center costs, which creates a measureable impact to the bottom line.

#5 – If your objective is to INCREASE LOYALTY AND CUSTOMER LIFETIME VALUE (CLTV)…

Consider leveraging a more sophisticated Social CRM (Customer Relationship Management) model. If you use a CRM technology platform currently (e.g., Salesforce), seek opportunities to amend customer profiles with their social data. Even if you don’t use a comprehensive CRM, perhaps you have a loyalty program that you can integrate with Facebook. By doing so, you can measure the CLTV of Facebook Fans versus non-Fans and test more precise and relevant targeting.

These five approaches are certainly not the only approaches to measuring Facebook ROI, but hopefully, they spark ideas for potential paths forward. There’s no one-size-fits-all approach to Facebook measurement – or any measurement for that matter. It takes a little science, some creativity, and most importantly, clarity on what you were trying to achieve in the first place.